Protocol header encrypt (PHE), Message stream encryption (MSE) or Protocol header encryption (PHE) are features of some BitTorrent clients that attempts to make BitTorrent hard to throttle. Some ISPs throttle BitTorrent traffic because it makes up a large porportion of total traffic and the ISPs don't want to spend money buying extra capacity. Instead, the ISPs spend money on hardware that look for BitTorrent traffic and slow them down.
History
Protocol header encrypt was conceived by RnySmile and first implemented in the BitComet client version 0.60 on 8 September 2005.
Message stream encryption was implemented in Azureus version 2307-B29 on 19 January 2006. [1]
µTorrent will implement Protocol header encryption in a later release. [2] Due to a lack of cooperation between the Azureus and µTorrent developers µTorrent will probably use its own protocol.
Operation
The BitComet PHE method is not published.
The Azureus method uses either the infohash or a D-H exchange to establish the key, then it either uses RC4 as the encryption method or just send the message as plaintext.
They are incompatable with each other.